Understanding Your Customers

The More You Know the More Sales Grow

Suppose sales at your firm have been holding steady, or even slightly increasing. Though these are undeniably positive outcomes, would you be able to pinpoint the specific reasons why your customers are giving you repeat business? Would you know how many of these repeat customers are susceptible to leave to a competitor?

Alternatively, if sales have been decreasing of late, would your firm know why this is the case? Are you meeting customer expectations, but being outperformed by competitors who are “pulling” customers away? Perhaps you’re inadvertently “pushing” existing and potential customers elsewhere because specific aspects of your service offerings are falling short of expectations. More important is this question: Do you know if your customers are fulfilling the majority of their gas and welding product needs from your company?

Based on my research findings with industrial distributors, a customer’s share-of-wallet (i.e., the percentage of their total spend in a category) is critically important to financial performance. Interestingly enough, it is not strongly related to customer satisfaction, however.

If traditional measures of customer satisfaction don’t predict share-of-wallet, what does?

I have found that, over years of conducting customer-based surveys for distributors selling commodity-type products, a consistent result has emerged. It’s this: If your customers are buying your company’s products and at least one other competitor’s for a given product category, a significant amount of your company’s share-of-wallet can be explained by a few key factors.

These factors include:

  • Salesperson performance
  • On-time delivery
  • Product quality
  • Customer support

For example, a reoccurring finding in my research is that while customers will rate salesperson likeability very high (ranging between 6.00 – 6.50 on a 7.00-point scale), total share-of-wallet for the company’s total spend in the category would often be less than 30 percent. This low share can often be explained by customer perceptions of organizational weaknesses involving delivery, product quality, or customer service issues.

Only A Guess?

Interestingly, when I survey industrial distribution salespeople about their activities and customer perceptions, they tend to overestimate not only the impact of their partnering activities but, more important, the customer’s share-of-wallet for the company’s products.

What this suggests is that without a comprehensive understanding of your customers, many companies may only be able to guess at why sales at their firm are increasing or decreasing, why customers are leaving, or how vulnerable current customers are to competitor offerings.

In answering questions like these, it is critically important to obtain specific insight into:

  • How customers perceive your firm’s performance on important service dimensions
  • The performance levels that customers expect from you
  • How those perceptions differ from those associated with the competition.

Such information is also important for developing future strategic initiatives designed to continue an uptick or to reverse a downturn in sales.

For the benefit of the GAWDA members, I have developed a web-based customer-survey template designed to provide insights into these issues. (I will be making a more detailed presentation about this survey and what the data you collect through your own survey can illustrate in terms of strategic business decision-making, during my talk at the GAWDA Spring Management Conference.)

Specifically, this free online survey can help members understand:

How customers perceive supplier performance on a number of important service and product dimensions (e.g., product quality, delivery, salesperson, etc.)
How this performance compares to the performance expected by gas and welder suppliers
What performance levels they associate with the competition
The perceived importance of the different service dimensions to their business.

Downloadable Survey

GAWDA Members can access more information about the survey, and a link to it here.

Once the survey is downloaded, GAWDA members then own it. They can modify the survey to fit their company’s specific needs. In addition, anyone in their company is free to use it as often as needed. This is a new resource GAWDA has provided, and it’s a valuable business benefit to members.

I recently tested the survey with the customers of a GAWDA-member firm. While I cannot disclose the firm’s name or the results in their entirety for confidentiality reasons, the study showed that the firm’s customers rated its salespeople and services as significantly better than the competition. (Hopefully, your firm was not one of those rated in the competitive analysis, as the averages were significantly lower than the focal firm.) While this was good news to the studied company’s management team, the results also suggested some areas for improvement.

For instance, the study showed that, in several of the sales and service dimensions customers perceived as important, the firm was either barely meeting or slightly below customer expectations. Armed with this information, management now can craft specific service strategies and activities designed to improve performance on those dimensions. Without this information, it could likely be business as usual, potentially increasing the chance of a competitor taking away market share.

Three Key Dimensions

The survey also assessed the importance of each service dimension to the customer’s business. While your customers may have their own unique set of important service dimensions, this survey identified three key service dimensions. Interestingly, some of the most important service dimensions were different from the suppliers’ expectations. Information such as this would be critically important in managing future customer purchase intentions. Here again, suppliers should be aware of what is most important to their customers; particularly when one of the most important service dimensions was rated below customer expectations in terms of performance.

Finally, from this survey data, we are able to provide a gap analysis between expectations and actual performance, which highlights specific areas for improvement. One benefit in conducting a gap analysis is that it captures the range of service levels within which a company is meeting customer expectations. Another benefit of capturing this information is that it allows the member firm to benchmark these results with future studies to determine the long-term effectiveness of its training and/or customer retention programs. Tracking how customer perceptions change over time is critical to sustaining a long-term competitive advantage in the marketplace. Would you know which service dimension is most important to your customers?

Finding Talent

In closing, because I teach students in the field of industrial distribution, I would like to highlight the aspiring professionals from my program. I can attest that these graduates are highly motivated, moveable and fully prepared for positions such as technical sales, operations, social media/marketing and logistics. As you consider your hiring needs, I recommend recruiting graduates from the Industrial Distribution Program at the University of Alabama at Birmingham.

Gases and Welding Distributors Association
Meet the Author
Thomas DeCarlo, Ph.D., is the Ben S. Weil Endowed Chair of Industrial Distribution and Director of the Charles & Patsy Collat Industrial Distribution Program in the Collat School of Business at The University of Alabama at Birmingham. He’s a noted researcher, consultant, teacher and author of distribution management. He can be reached at: tdecarlo@uab.edu and 205-934-8989.